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Environmental Management

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III. Environmental Management
Environmental Commitments

We are committed to managing and minimizing the impact of our operations on the surrounding environment and to reclaiming and revegetating the affected land. Through our Environmental Policy (see Appendix A), we commit in these policies to sound environmental management and practices, to providing adequate resources to fulfill that responsibility and to continuous improvement of our environmental performance at every operational site. We are also strongly committed to supporting scientific research to understand the environments in which we operate and to comprehensive monitoring to determine the effectiveness of our management practices. We also work with governmental agencies, the local population and responsible nongovernmental organizations to enhance our environmental performance. We have also adopted the principles of the Sustainable Development Framework of the International Council on Mining and Metals (ICMM), of which we are a member.

Environmental training of all employees and contract personnel is an important aspect of PT Freeport Indonesia’s Environmental Management System (EMS).

Environmental Audits

In our Environmental Policy, we commit our Company to regular internal and external environmental audits to assess our environmental compliance, management systems and practices. PT Freeport Indonesia's environmental audits provide our managers with information on current environmental performance and help identify opportunities for improvement. In 2004, two environmental audits were conducted. Representatives from Crescent Technology Inc. audited PT Freeport Indonesia's operations in March as part of the annual corporate internal auditing program. In December 2004, the International Certification Services Division of Société Générale de Surveillance (SGS), an ISO 14001 registration body based in Geneva, Switzerland with offices in Indonesia, conducted an environmental management system audit of PT Freeport Indonesia as a requirement for maintaining the ISO 14001 certification first granted in 2001. SGS again granted ISO 14001 certification to PT Freeport Indonesia as a result. (Please see ISO 14001 Environmental Management System section on page 30). Actions have been taken to implement recommendations for improvements that were made in both audits.

Our environmental management system also includes an in-house environmental inspection program that is conducted continually throughout the year. These inspections are conducted at 383 facilities, including contractors and privatized companies, from the Grasberg mine site to the port. The purpose is to assess conformance by all facilities to our environmental management system. The results from these inspections serve as a measurement of our environmental performance and a basis for determining continual improvement. The results are also taken into account in the determination of employee bonuses, providing an added incentive for our workforce to maintain high environmental performance.

Reclamation development programs demonstrate that numerous plants, including agricultural crops, can be grown on soil containing tailings - the finely ground natural rock that is left after processing of ore.

Environmental Audits

ISO (International Standardization Organization) 14001 is an international standard that provides companies with a systematic approach to effective environmental management and continuous improvement. PT Freeport Indonesia was one of the first mining operations in Indonesia to achieve this recognition when we were awarded ISO 14001 certification in December 2001 for our mining and ore processing operations. This significant achievement demonstrates our strong commitment to providing effective environmental management at our operations. This formal certified environmental management system is the basis for measuring continual improvements in our environmental performance, a cornerstone of ISO 14001.

Periodic follow-up reviews are required by ISO 14001 protocols. These are conducted by the certification agency to determine the status of conformance and to assess continued certification for our operational facilities. PT Freeport Indonesia was reviewed in 2002, 2003 and again in December 2004 in conjunction with the audit by the certification agency, SGS. The audit verified that PT Freeport Indonesia's Environmental Management System was in conformance to the ISO 14001 standards in 2002, 2003 and 2004 and remains certified for another three years.

Tailings Management Program

Tailings are finely ground natural rock residue from the processing of mineralized ore. PT Freeport Indonesia uses a flotation process, which is a physical separation of the copper- and gold-bearing minerals from the host rock. PT Freeport Indonesia does not use mercury or cyanide in its process.

PT Freeport Indonesia uses a river system to transport tailings to a designated area in the lowlands and coastal zone, called the Modified Deposition Area, which is an engineered, managed system for the deposition and control of tailings. The tailings deposition system is operated under PT Freeport Indonesia's comprehensive tailings management plan, as approved by the Government of Indonesia. This system involved construction of lateral containment structures, or levees, for the deposition area. These levees were later extended and work is continually conducted on various enhancements to the system, including inspections, monitoring and physical works. When mining is completed, the deposition area will be reclaimed with natural vegetation or used for agriculture, forestry or aquaculture.

As part of the Government-approved AMDAL (environmental and social impact study) completed in 1997, it was agreed that three of the twelve tailings management options originally considered should be studied in further detail. A Tailings Review Committee comprised of members of the Environmental Risk Assessment Review Panel Team, the PT Freeport Indonesia Environmental Advisory Council, and PT Freeport Indonesia management was established to review all options. After 11 detailed studies were completed, including analysis of remote sensing information, evaluation of various pipeline options, a review of geotechnical considerations, flood and hydrogeological impacts, and a series of risk assessments, the Tailings Review Committee concluded that the current tailings management system, transporting tailings to the Modified Deposition Area, is the best option available. Independent environmental audits of PT Freeport Indonesia's environmental management systems have reached the same conclusion. PT Freeport Indonesia continues to work with various national and international experts to ensure that its tailings management practices represent the best alternative, considering the applicable geotechnical, topographic, climatological, seismic and rainfall conditions.

The Modified Deposition Area in the lowlands portion of the PT Freeport Indonesia project area - an engineered, managed system for the deposition and control of tailings sediment.

PT Freeport Indonesia has also submitted to the Government of Indonesia a detailed Environmental Risk Assessment of the tailings management system. This assessment found that the environmental impacts of PT Freeport Indonesia's expanded operations were consistent with those anticipated by the Company's comprehensive environmental and social impact study, the AMDAL, which was completed in 1997 and approved by the Government of Indonesia.

Studies of tailings reclamation and establishment of demonstration plots on tailings areas show that tailings can be readily revegetated/replanted with native forestry and agricultural plants. In fact, natural re-colonization takes place rapidly. Details of results to date are discussed in more detail below.

Extensive sampling of water quality in the tailings management system shows that the water in the river which transports the tailings from PT Freeport Indonesia's mill in the highlands to the lowlands deposition area meets the Indonesian and U.S. Environmental Protection Agency drinking water standards for dissolved metals. Data from biological sampling continue to demonstrate that the estuary downstream of the tailings deposition area is a functioning ecosystem based both on the number of species and the number of specimens collected of nektonic, or free-swimming, organisms such as fish and shrimp.

Ajkwa River Channel

Beginning in 1998, a new levee was constructed to the east of the existing west levee which provided the western boundary for the tailings deposition area in the lowlands. Construction of the new levee creates a channel between it and the old levee. To fulfill its commitment made to the Government of Indonesia in its 1997 AMDAL, PT Freeport Indonesia is working to divert the Ajkwa River into this channel, which is closer to the river's original course. The diversion is expected to be completed during 2005.

There are a number of environmental advantages to returning the Ajkwa closer to its original channel. The Otomona River carries the mine tailings to the deposition area. There are no mining operations in the watershed of the Ajkwa River, which joins the Otomona at the northern edge of the deposition area. The flow of the Ajkwa contributes to the transportation of tailings through the land-based portion of the deposition area. Directing the Ajkwa River to the channel between the two levees will prevent its coming into contact with the tailings deposition area and thus will provide additional natural freshwater flow along the eastern boundary of the heavily populated area of Timika. It will also reduce the amount of tailings that flow through the deposition area into the estuary and the Arafura Sea.

Directing the Ajkwa River flow to the new channel will allow reclamation demonstration projects to be carried out in the area between the two western levees. This area is already the site of successful reforestation and agriculture projects begun as the new levee was being built.

To date, more than 20 species of native alpine plants are successfully grown in overburden placement areas near the Grasberg mine as part of highlands reclamation development programs.